Korea's consumer price index rose 3.1% in May from a year earlier, the highest in 26 months, the National Data Agency announced Monday. Petroleum product prices jumped 24.2%, and the living price index closely watched by the Bank of Korea climbed to 3.3% from 2.9% the previous month. With the full impact of the war yet to materialize, inflation in the 3% range is likely to persist. The won-dollar exchange rate, hovering above the 1,510 level, could further fuel price gains. Against this backdrop, a rate hike by the Bank of Korea appears inevitable. BOK Governor Hyun Song Shin, who signaled a rate hike right after the recent Monetary Policy Board meeting, reiterated his tightening stance the previous day, saying, "There are few obstacles to adjusting monetary policy in relation to inflation."
The triple burden of high inflation, high interest rates and a high exchange rate strikes directly at the weak links of the economy, including low-income households and small and medium-sized enterprises. While real gross domestic product grew 3.6% year-on-year in the first quarter, real household income rose just 0.4%, weighed down by elevated prices. The fruits of growth remain a "pie in the sky" for most citizens. Investment is flowing into specific sectors such as semiconductors, while SMEs squeezed by high borrowing costs are being pushed to the brink. Cumulative corporate bankruptcy filings through April surged 20% from a year earlier. The gap between semiconductors and non-semiconductors, between a red-hot stock market and a cooling household economy, is widening by the day.
The bigger problem is the government's complacent perception of this economic reality. Kim Yong-beom, head of the Presidential Office Policy Office, stirred controversy recently when he described the triple-high phenomenon on Facebook as "an unavoidable cost of success." President Lee Jae-myung the previous day criticized on X (formerly Twitter) an article stating that "excluding semiconductors, the KOSPI would be at 4,100 to 4,200," pushing back against the "semiconductor illusion" argument. Deputy Prime Minister and Finance Minister Koo Yun-cheol said at a Cabinet meeting the same day that "exports of computers, ships and secondary batteries are also doing well." Yet with semiconductors alone accounting for 42% of total exports, such explanations may sound like flimsy justifications.
We must not mistake the current growth and stock market boom, driven by the semiconductor cycle, as a true reflection of our economy's strength. Rather than settling for the comfort of an "optical illusion," the government must craft precise countermeasures. Without urgent inflation responses and support for vulnerable groups to ease the burden on people's livelihoods, and without structural reforms and deregulation to revitalize the industrial ecosystem, it will be difficult to lift the deep shadow of "K-shaped polarization" hanging over the Korean economy.
